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Profile: Lehman Brothers
Lehman Brothers was a participant or observer in the following events:
Talks between Lehman Brothers and the Korea Development Bank end. The Koreans had been thinking about investing in the bank, enabling it to raise needed capital. However, they decide not to go through with the investment. [Bloomberg, 9/16/2008] Lehman Brothers files for liquidation five days later (see September 14, 2008).
Lehman Brothers, the fourth largest investment bank in the US, files for liquidation after huge losses in the mortgage market, a crippling loss of investor confidence, and its inability to find a buyer. Lehman’s collapse began as the mortgage market crisis unfolded in summer 2007, when its stock began a steady fall from a peak of $82 a share. Fears were based on the fact that the firm was a major player in the market for subprime and prime mortgages, and that as the smallest of the major Wall Street firms, it faced a larger risk that large losses could be fatal. As its crisis deepened in 2007 and early 2008, the investment bank defied expectations more than once, as it had many times before, such as in 1998, when it teetered after a worldwide currency crisis, only to strongly rebound. Lehman managed to avoid the fate of fellow investment bank Bear Stearns, which was bought by JP Morgan Chase at a bargain basement price under the threat of bankruptcy in March 2008 (see March 15, 2008). By summer, however, Lehman’s roller-coaster ride began to have more downs than ups. A series of write-offs accompanied new offerings to seek capital to bolster its finances. [New York Times, 9/16/2008]
Since implementing a program to help millions of homeowners restructure their mortgages to prevent foreclosure, only 235,247 loans have actually been modified, according to the US Treasury Department in its first progress report. After the plan was announced in February, the first banking institutions began accepting applications in April. Between now and 2012, the Obama administration says it is on track to assist 4 million homeowners. The report occurs a week after the administration summoned institutions to Washington to discuss speeding up the program after large numbers of borrowers’ complaints that assistance was barely occurring. The Obama administration plans 500,000 modifications by November 1, and hopes to hold the institutions responsible for their performance with the release of monthly reports that allow consumers to see which banks are slow to implement the plan. So far, institutions have extended offers to 15 percent or 406,542 homeowners in danger of losing their homes, with uneven performances by 38 participating servicers. Morgan Stanley’s subsidiary, Saxon Mortgage Services, tops the list with 25 percent of its delinquent loans placed in trial modifications. Saxon is followed by Aurora Loan Services, a Lehman Brothers Bank subsidiary, with 21 percent. GMAC Mortgage, partially owned by the US government, has put 20 percent of its troubled loans into trial modifications, while major banks JPMorgan Chase, Citigroup, Wells Fargo, and Bank of America have late loan trial modifications of 20 percent, 15 percent, 6 percent, and 5 percent respectively. The lenders acknowledge that they must improve their performance, and say that they are committed to President Obama’s foreclosure prevention plan, stressing that they were already performing modifications prior to the administration’s program. Wells Fargo says that it will soon have the ability to send eligible borrowers trial modification agreements within 48 hours. “We set a high bar for ourselves in terms of customer service, and we didn’t hit that bar in all cases in the first seven months of this year,” says Mike Heid, co-president of Wells Fargo Home Mortgage, “We have added 4,000 employees to our loan workout division this year. JPMorgan Chase says it has another 150,000 applications in need of processing and is currently training an extra 950 workout specialists hired earlier in 2009, bringing its modification staff to 3,500 people. “We know we’ve got more work to do,” says Chase spokesman Tom Kelly. “But the bank is pleased with its performance to date.” CitiGroup’s mortgage agency, CitiMortgage, added 1,400 staffers to its modification team, with 800 dedicated to loss mitigation at its recently opened Tucson, AZ call center. It began placing troubled borrowers in trial modifications in early June. “In the next quarter, one can expect the pace will be even higher,” Sanjiv Das, CitiMortgage head, says. Bank of America says it needs to improve its reach out efforts, while noting that it holds nearly one in four trial modifications offered under the Obama plan and has extended nearly 100,000 offers, although only 28,000 trial modifications are in process. Bank of America purchased mortgage giant Countrywide Financial last year, and has the largest number of eligible delinquent loans with almost 800,000. Borrowers have been pressuring the Obama administration as well as servicers and are complaining that servicers are not responding to applications and calls, are losing their paperwork, and are not making timely decisions. Servicers say they are increasing their staffing and upgrading their computer systems to handle the hefty increase in applications. Says Michael Barr, assistant US Treasury secretary for financial institutions, “We are working with servicers to ensure that they can adequately implement the program and servicers are increasing staff and training, but they must also treat borrowers more respectfully and respond in a much timelier manner.” [CNN News, 8/9/2009]
Entity Tags: Countrywide Financial, Wells Fargo Bank, N.A., Bank of America, Aurora Loan Services, US Department of the Treasury, Citigroup, Tom Kelly, Sanjiv Das, GMAC, JP Morgan Chase, CitiMortgage, Lehman Brothers, Morgan Stanley, Michael Barr, Saxon Mortgage Services
Timeline Tags: Global Economic Crises
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